Coppola Comment

In my last post , I discussed Richard Murphy's " green QE " proposal in the context of a functioning currency union in which the decision to monetise debt would be made by the UK government. But the context of Richard's piece opens the door to a disturbing idea. Some Scottish Nationalists interpreted his proposal as meaning that a fully fiscally autonomous Scottish government could demand that the Bank of England buy Scottish government bonds (whether or not issued by a Scottish Development Bank) in order to prevent Scotland's debt/GDP rising as a consequence of infrastructure investment. The Scottish Nationalists who raised this possibility homed in on this part of Richard's piece: In March 2014 Bank of England Governor Mark Carney confirmed in a letter to Green MP Caroline Lucas that “It is possible that if the Monetary Policy Committee did vote to increase its asset purchases in future, it could expand the range of assets it purchased. Such a decision, ...

Richard Murphy proposes what he calls " green quantitative easing " to support the Scottish government's plans for fiscal expansion. I've criticised the "green QE" proposal before . But this is a particular framing of it that raises some interesting issues about the nature of currency unions and the purpose of monetary policy. Here's the heart of Richard's proposal: It is worth explaining what I think the SNP is referring to when it mentions ‘innovative finance mechanisms’. It is my belief that they are referring to  green infrastructure quantitative easing ,which was the subject of  a speech I made at the Convention of Scottish Local Authorities conference in March. In that speech I made clear that if the SNP wanted to do a service to Scotland, and to the rest of the UK, it would use its bargaining power after May 7 to demand that the UK government create a new form of quantitative easing that would be quite deliberately intended to provide ...

  I've collected here all my posts in various places on Scotland's quest for independence and related issues. It's quite a story - not least because my own views changed during that time. To start with, I was personally uninvolved: I didn't care whether Scotland stayed or went (though I wanted Nat West back). But as time went on, I became more convinced by the emotional arguments for independence - and less convinced by the economic case. In the end, head ruled heart and I came out in favour of "No". But it's not over yet..... Scotland's currency conundrum I was one of the first people to look at the currency question in some detail, in January 2012.  I realised that the currency could not be considered in isolation from other matters such as EU membership and even what "independence" really means in our globally interconnected world. All of those are therefore discussed in this post. Scotland and the Banks After the UK political par...

Faisal Islam reports that Alex Salmond has demanded “Scotland's share” of the assets of the Bank of England, namely its gold, FX reserves and its holdings of UK debt built up through two rounds of QE: ... @alexsalmond says he wants Scotland's share of the @bankofengland gold reserves and the "gilts that have been built up" ie via QE — Faisal Islam (@faisalislam) September 16, 2014 Salmond didn't mention the liabilities, which is unfortunate since if you take a share of an institution you must take both the assets and the liabilities. The liabilities of the Bank of England are the monetary base of the United Kingdom – sterling notes & coins and sterling bank reserves. There is a very good reason why Salmond didn't mention the liabilities. He wants to use Scotland's share of the Bank of England's assets to write off Scotland's share of UK debt, leaving Scotland with a debt-free balance sheet at independence: There is an idea th...

I have been very reluctant to write more about the Scottish independence question. Earlier this year I wrote a couple of pieces about the currency question, and one about the implications for the rest of the UK. But since then I have become very aware of how painful this is for many people, including me. This piece is not easy for me to write: I have strong personal and family ties to Scotland, and have always seen my Scottish friends as part of my British "family". My own identity is more British than English, and I am deeply hurt by people who say "the United Kingdom is not a country" or "there is no such thing as British". That may be how they feel, but it is not how I see myself. For me, I am British first. I am also concerned that anything I write now would be inevitably seen as taking a political stance. The economics of what is being called "independence" are horrible , at least in the short term: but if I write a piece explaining that, ...

Oh, this is fun. Bob Denham of EconFilms has turned the economics of Scottish independence (and, let's be honest, the politics too) into what he describes as a "romantic comedy". Cue Rachmaninoff, please... The mini-series ‘United Queendom’ tells the story of a gay couple on the verge of separation. The couple argue over oils (for the bath), who controls the credit card, membership of ‘The Club’ and whether they should aspire to be like their neighbour, the Scandinavian Model. With 10 days to go to the referendum and polls showing it will go to the wire, the series is an attempt to get more people engaged in the debate – particularly those who can’t vote but are affected, such as people in the rest of the UK. Here's what Bob has to say about it: ‘The more people can relate to the debate, the better – and nowhere is that more true than on the economics of a possible break up.’   He adds: ‘This series is universal. I want everyone in the world to be able to...

The Scottish currency question is in the news again as Alex Salmond insists that an independent Scotland would use the pound "come what may". At Forbes, Tim Worstall and I both look at what this might mean in practice. But we have slightly different views.... "My colleague  Tim Worstall   argues correctly  that an independent Scotland would still be able to use the pound if it chose. Just as the US has no power to prevent Panama, Ecuador and even Zimbabwe using the US dollar as their currency, so the remainder of the UK would have no power to prevent an independent Scotland using the pound. But equally, independent Scotland using the UK pound as its currency without any form of monetary union with the UK would have no control whatsoever over monetary policy. In Zimbabwe this is a good thing, since the last thing anyone wants is the government to have any control of monetary policy. But Scotland is not Zimbabwe: the whole point of the independence campaign is that Sc...

My post about Scotland and the banks attracted an outbreak of criticism from fervent Scottish Nationalists. I found this rather bizarre, as throughout the post I assumed there would be a "Yes" vote in the September referendum. How this translates to " Coppola despises #indyref " is a mystery. But it raised a question. What opinion, if any, do I - a British citizen living in the south of England - have a right to express? The events of the last week have made it very clear that Scottish independence would affect all of the UK. I have no vote in this referendum, but I definitely have an interest in its outcome. It is therefore wrong to suggest (as some do) that I have no right to comment AT ALL on Scottish independence and its effects. Scottish independence would affect me. Therefore I have a right to express an opinion on it. I am no constitutional lawyer, but it is clear to me, at any rate, that the UK must continue in some way after Scottish independence. I am...

The UK government this week ruled out any question of agreeing to a currency union with an independent Scotland. Joseph Cotterill of FT Alphaville explains why the UK unquestionably has the power to do this and there is little the Scottish government can do about it: " From the date of the Treasury’s promise on gilts, the Scottish government effectively conceded its maximal demand already. Furthermore it couldn’t use market volatility to revive the issue: any share of the debt it paid would be to the UK government. The market itself would trade on the UK’s gilt guarantee.... "   In other words, because the UK Treasury has guaranteed to honour all existing UK debt issuance, the SNP's threat to repudiate Scotland's share of UK debt if it doesn't get currency union has no market impact. It is therefore hollow. The lesson for the SNP is - never, ever underestimate the deviousness of Treasury mandarins.  Wily though he is, it seems Alex Salmond is no match for Sir...